Business Flashcards
How is a partnership formed?
Two or more people
Carry on a business in common
With the intention to make profit
No formalities required
If it’s unclear if a partnership has been formed, the sharing of profits is prima facie evidence (agreement to share loss is some evidence but not prima facie)
Actual authority can be granted:
Expressly in a partnership agreeement
Expressly from a vote of the partners
Or
Impliedly from partners’ failure to object to past actions
When does a partner have apparent authority?
A partner has apparent authority to carry on in the usual way business of the kind is carried on by the partnership unless: they had no actual authority to act AND the 3rd party knew they lacked actual authority or did not know they were dealing with a partner
Carrying on in the usual way of business is objective: would a reasonable 3rd party think a business of this kind would usually do this act?
What needs to be submitted to Registrar of Companies to register LLP?
Name of LLP (which must end in LLP or Limited Liability Partnership)
Location and address of registered office
Names and addresses of the members and who will serve as designated members (at least 2 people required as DM)
Details of people with significant control (people who have right to more than 25% of assets, voting rights or other rights of control, right to appoint or remove majority entitled to take part in management)
What does an LLP need to do to change its name?
Deliver a notice of the change to the Registrar of Companies
Change becomes effective when the Registrar issues a certificate of the name change
When must the Registrar of Companies need to be notified of changes to LLP’s membership or designated members?
Within 14 days of the change
Who is a person with significant control?
Those holding more than 25% of surplus assets on winding up
Those holding more than 25% of rights to vote on matters to be decided on by members of LLP
Those holding the right to appoint or remove the majority of those entitled to take part in management
Or
Someone who otherwise can exercise significant influence or control over a trust or members of a firm that is not a legal person but meets any of the specified conditions in relation to the LLP
What is an unlimited company?
One whose members are personally liable for all the debts of the company
What is a company limited by guarantee?
Whose shareholders’ liability is limited by amounts they guarantee - typically used for non profits
What is a public limited company?
Whose shares may be issued to public generally, can list their shares on stock exchanges
Required to have minimum nominal share capital of £50,000
What does a promoter need to file for a company to be incorporated?
Memorandum of association - authenticated/signed agreement of persons wishing to become members of a company upon its formation procured by promoters
along with application for registration which must include:
-proposed name of the company
-location of its registered office
-details about the company’s business
-whether it will be limited by shares or guarantee
-statement of capital and initial shareholdings
—>total number of shares to be taken by subscribers
—>aggregate nominal value of the shares
—>if shares divided into classes, a description of each class
—>the amount that will be paid up but he shareholders and amounts left unpaid for shares
-statement of proposed officers/directors
-details of persons with significant control
-statement of compliance with Companies Act 2006
-the relevant fee
When will the veil of incorporation be lifted or pierced?
If the company form is being used to carry out fraud or avoid existing obligations
How many directors must a private company have?
At least 1
How many directors must a public company have?
At least 2
How quickly does Registrar of Companies need to be notified of new directors or changes to existing directors’ details?
14 days
De facto director
Acts as a director, claims to be one but has never been appointed
Still treated as a director
Shadow director
Influences other directors but doesn’t claim to be one ad hasn’t been appointed as one
Still treated as a director
Executive director
Responsible for day to day running of the company, employee of the company
Non executive director
Usually consultants
Take on more supervisory role overseeing activity of executive directors
Nominee director
Appointed to board to represent interests of a particular stakeholder, usually a shareholder
Director must exercise higher of the care, skill and diligence that would be exercised by reasonably diligent person with:
-general knowledge, skill and experience that reasonably may be expected of a person carrying out the duties of a director (objective)
Or
-general knowledge, skill and experience the director in question actually has (subjective)
Director must exercise higher of the care, skill and diligence that would be exercised by reasonably diligent person with:
-general knowledge, skill and experience that reasonably may be expected of a person carrying out the duties of a director (objective)
Or
-general knowledge, skill and experience the director in question actually has (subjective)
Corporate tax rate for companies with profits over £250,000
25%
Corporation tax rate for profits below £50,000
19%
Exempt assets for CGT
Wasting chattels (moveable property with life of less than 50 years)
Cash
Shares in an ISA
Gilt/govt bonds
Non-wasting chattels worth less than £6,000
Who needs to agree to admit new members to LLP?
All current members (unanimous)
Admin and filing duties of LLP’s designated members:
Approve and remove auditors
Submit annual confirmation statements
Sign and file accounts
Comply with stat filing duties
LLPs must notify Reg of Companies of changes in membership or identity of designated members within
14 days
What LLP docs must be filed with Companies House?
Annual accounts
Annual confirmation statement
Details of appointment and removal of members
Details of changes to members’ details
Change in name or registered office
Clawback provision
Any member of LLP has withdrawn property within 2 years of insolvency, proved they knew or had reasonable grounds for knowing LLP couldn’t pay its debt or wouldn’t be able to after withdrawal: member might be ordered to contribute to assets of LLP
When do charges and mortgages need to be registered at CH?
Within 21 days of creation
Notice of change of director or officer with CH
Filed within 14 days
Ordinary resolution to allot shares filed at CH
Within 15 days of approval
Special resolutions filed at CH
Within 15 days
CH notified of issuance of new shares
Within 1 month
On registered company letterhead
Name of company, address, registered bumber, part of the UK they are registered in
Partnership letterhead
Name of partnership
Names of partners
Address
Sole trader letterhead
Business name
Real name if different
Business address
Individual tax returns due
31 January after tax year
Second payment 31 July
any balance owed the 31 Jan after
Personal savings allowance
£1000 basic
£500 higher rate
Taxed at 0%
3 categories of income for tax
non-savings income, savings income and dividends income
Exempt from CGT
Wasting chattels - movable property w life of less than 50 years
Non- wasting assets worth less than £6000
Pay CGT on property within
60 days of completion
Individual Voluntary Arrangement
a number of creditors agree to accept a reduced amount of money and payment at a different time
requires approval of 75% of the unsecured debt but if approved becomes binding on all ordinary unsecured creditors
preferential creditors (employees owed pay from last 4 months) and secured creditors only bound if they agree
For an IVA, an insolvency practitioner must
-have debtor prepare statement of affairs
-apply to bankruptcy court for interim order to prevent creditors from filing for bankruptcy
-prepare report advising on proposal and chance of acceptable one
-call meeting of creditors
-supervise and implement plan
Insolvency
a person or business is unable to pay their debts
Bankruptcy
judicial process in which assets of bankrupt debtor are passed to third party (trustee in bankruptcy) who liquidates the assets and uses the money from the liquidation to pay off as many debts as possible
once an application for bankruptcy is made, creditors must stop chasing debtor. debtor will be discharged from most debts after 1 year
Who can apply for a bankruptcy order
- the debtor can apply online
- one or more of the debtor’s unsecured creditors owed at least £5,000 can submit a petition
-application must prove insolvency by showing either debt is immediately payable and no funds to pay or debt payable in future and no reasonable prospect of being able to pay
-if debtor owes liquidated debt of £5,000 + creditor can make stat demand for payment, if it’s not paid or debtor doesn’t apply to set it aside within 3 weeks, will be deemed insolvent
for future liability of £5,000+, credit can serve stat demand for proof of ability to pay and if isn’t able to show or apply to set aside, debtor will be deemed insolvent
if owes judgement debt of £5,000+ and attempt to execute fails, debtor deemed insolvent - supervisor of IVA
during bankruptcy proceedings, the bankrupt may not:
apply for credit over a prescribed amount
act as a company director
be a partner
trade under another name
order the trustee in bankruptcy pays creditors:
costs of bankruptcy
preferential debts (includes employee wages 4 months, money owed to HMRC inc VAT, PAYE and NI
ordinary unsecured creditors
postponed creditors (spouse or civil partner)
6 insolvency options for LLP or company
- receivership
- restructuring plan (requires approval of 75% unsecured debt)
- administration
- CVA
- moratorium (halt creditor action in order to decide what to implement, appoint an insolvency practitioner)
- liquidation
Receivership
if creditor has taken over a company’s fixed assets, creditor can appoint receiver to take the charged asset and sell it to pay off the obligation
receiver’s duties are only to the creditor
Administration
procedure which enables the administrator to run, reorganise and/or sell company as going concern
admin acts in interest of creditors as a whole
can go into admin through court hearing or by filing certain papers
only ordered if court satisfied it will achieve a better result for creditors than liquidation
Members’ Voluntary Liquidation
only available if company is solvent but individuals running it wish to wind it up
liquidation causes assets to be sold to pay debts and company then ceases to exist
Creditors’ Voluntary Liquidation
started by directors then taken over by creditors
members pass special resolution to start liquidation
Compulsory liquidation
creditor who can show the company is unable to pay its debts can petition for company to be wound up
liquidator appointed to collect and sell assets
Order of debts to be paid in liquidation
expenses of winding up
preferential debts (employee wages)
debts secured by floating charges (in order of priority)
unsecured debts
shareholders
(rank and abate equally if not enough at a level)
Preference
when a debtor does something that intentionally puts a creditor in better position for liquidation than they otherwise would have been
Time frame of preference for trustee in bankruptcy to claw back
if preference was paid within 6 months of onset of bankruptcy - desired to put them in better position
2 years if connected person
company was unable to pay debts at time or unable as a result
Transaction at undervalue time frames to be set aside
2 years for company bankruptcy which was either insolvent at the time or made insolvent as a result
-presumption of insolvency if transaction is to a connected person
defence available if done in good faith and reasonable grounds for believing it would benefit company
5 years for individual
-no need to prove insolvency at the time if within 2 years of petition
-insolvency presumed if transaction made at any time in favour of close relative or business associate
wrongful trading
directors carry on business when they knew or ought to have known that company has no reasonable prospect of avoiding insolvency and failed to take adequate steps to minimise losses
fraudulent trading
director carries on business with intent to defraud creditors
if established, directors may be liable to make personal contribution to company assets
When should a sole trader or partner register with HMRC
within 3 months of starting
Annual Investment Allowance
when taxpayer buys capital asset for their business
allows them to deduct the costs of plant and machinery in accounting period up to £1,000,000 in the 12 months
exceed AIA, Writing Down Allowance in available: deduct fixed percentage of the cost of the asset each year (18% for most, 6% for lifelong)
Overlap profits
when business’s accounting period doesn’t coincide with tax year, business still taxed on the profits made during the accounting period that ends in the tax year to 5 April, so some first year profits will be taxed twice
dont usually get relief until trade ceases or change account period to end 5 April
Personal allowance
every tax payer entitled to £12,750 PA but it is tapered by £1 for every £2 over £100,000
Marriage allowance
enables someone to transfer part of their personal allowance to their spouse if:
married/civil partner
transferring spouse’s income is less than personal allowance
recipient spouse is basic rate taxpayer
transferring spouse reduces their personal allowance by the amount transferred and recipient spouse gets a credit against tax owed of 20% of amount transferred
Dividend allowance
£1,000 for all taxpayers
a nil rate band
Alternatives for sole trader or partner to offset trade losses:
set off against total income from current or prior year
carried forward and set off against future profits - trading income not other income
against salary or dividend payments from the company for any year in which they own shares
deducted from trading profits in the tax year the trader ceases trading then carried back to 3 preceding tax years - set off only against profits of the trade, not other income
General anti abuse rule
allows HMRC to set aside a tax arrangement if it cannot reasonably be regarded as a reasonable course of action
HMRC may make a tax adjustment that is just and reasonable under the circumstances
When do corporation tax returns need to be submitted?
12 months after the end of their financial accounting period
replacement of business asset/rollover relief
company entitled to tax relief when it disposes of a capital asset at a profit and uses the profit to buy a replacement asset
gain deferred to when replacement is sold
calculation: acquisition cost of new asset - gain
Corp tax options for company that has a loss in a year
- set loss against total profits (before qualifying charitable donations) in the current accounting period if there are any
-carrying the loss back to set it against total profits in preceding 12 months (only possible after current period offset)
-carrying loss forward to set it against total profits (after qualifying charitable donations) of later accounting period
when a close company makes a loan to a participator, it must pay 33.75% of the loan to HMRC when?
within 9 months and 1 day after the end of the accounting period in which the loan is made
payment will be refunded to the company when the loan is repaid or written off
-to the extent it is written off, it is taxed as a dividend distribution to the participator
the payment of the tax isn’t a deductible expense for the company
How do companies execute a document?
either affixing their seal to the document or the signature of:
2 directors, director and secretary or single director in presence of witness who attests
When is duty to the shareholders displaced by a duty to creditors?
when a company is insolvent or on the brink of insolvency
how can the shareholders remove a director?
simple majority vote
but notice to adopt a resolution to remove a director needs to be given 28 days before the hearing and director must be given notice and a right to respond in writing and orally at the meeting
Bushell v Faith clause
gives a weighted vote to a director who is also a shareholder
- important if shareholders voting to remove a director
requirements for a public company’s secretary
such as:
previously been a company secretary for 3 years
member of regulated accounting or secretarial body
a barrister or solicitor
how many shareholders required to demand general shareholders meeting?
5% of paid up capital
if shareholders request a meeting, when does it have to be held
directors must call it within 21 days and it must be held within 28 days
What must be on the notice of a shareholders’ meeting?
company name
time, date and place of the meeting
general nature of business to be discussed
statement of right to appoint a proxy
full text of any special resolution
how much notice is required for a shareholders meeting?
at least 14 clear days in advance plus 2 days for deemed delivery if notice not hand delivered
for annual meeting of a public company, 21 days clear notice
when can a meeting be held on shorter notice?
if agreed by a majority in number of the shareholders who hold 90% of the shares (95% for non-traded public companies)
who can request a poll vote?
5 or more shareholders or shareholders with at least 10% of voting rights or 10% of paid up capital
how many shareholders to require directors to circulate a written resolution?
5%
how long until written resolution lapses?
28 days from and including day of circulation
When do directors have the power to allot additional shares?
if company has only 1 class of shares and no restriction removing this power in the articles
in other situations, they have to seek permission from shareholders via ordinary resolution
how much time must shareholders be given to accept additional cash shares under pre-emption rights?
14 days
can a shareholder sell their shares to a third party?
governed by articles
in model articles, private companies have an absolute right to refuse to allow a transfer of shares
Floating charge is automatically void if
If created within 12 months insolvency for no additional consideration AND
company insolvent at time/become insolvent as a result, automatically
If to connected person, 2 years and no need to prove insolvency at time
When is a company deemed to be unable to pay its debts?
Creditor owed more than £750 served a statutory demand not paid within 21 days
Creditor has obtained a judgement against the company and attempted to execute it but the debt is not fully satisfied
Company is unable to pay debts as they fall due (cash flow test)
Value of assets are less than liabilities (the balance sheet test)
→ the latter two are harder for creditors, no access to books. Used more by directors
Who can appoint a director?
directors or shareholders
substantial property transaction
involves directors w personal interest - more than £100,000 or £5,000 and value is more than 10% of company’s assets
When do companies have to send copies of their accounts to Companies House?
no later than 9 months after end of their relevant accounting reference period
6 months if a public company
What is a floating charge?
can only be granted by companies and LLPs
a charge over present and future assets that are to be retained in the business (like inventory)
Who has to consent to a partnership adding a new partner?
all existing partners
outgoing partner will be liable for obligations incurred after they retire unless they give:
actual notice of their retirement to existing creditors and
publication notice in London Gazette to everyone else
which decisions require unanimous consent by partners?
admitting new partner
change in nature of partnership business
altering the partnership agreement
expelling partner
